Markets are primarily driven by a school of economic thought not widely taught or accepted by academics. That's why nearly all Economic professors/CTA's/Fund Managers are wage-slaves and can't predict market bottoms and tops with any useful regularity. Think about how ridiculous that is. On the other side, a handful of *astute* investors ventured outside the box and succeeded. Soros and Buffet understand what drives broader macro currents but leverage them in different ways. From my understanding, Buffet takes over poorly-managed companies with strong fundamentals, replaces management with his own guys, then rides the stock for a big gain. Essentially, plays managerial arbitrage in bull markets. I remember a WSW episode where a small-cap hedge fund copied Buffets strategy, for poorly-run micro-caps. One of the best axioms for success: take advice from people who are where you want to be in life.
Baron and Gabfly, thanks for the advice. Have any of you read Cunningham's Essay's of Warren Buffet? I was wondering if the second edition and first edition are substantially different or I could just go with edition 2 (i.e. are the essays the same with some extras or they are very different)? Thanks!
Read: 1) This by Warren Buffett: http://www.valueinvesting.de/en/superinvestors.htm 2) The Intelligent Investor (especially chapters 8 & 20) 3) The Snowball
Methinks Scataphagos does not actually trade for a living, and probably not even as a hobby. 27% per week? Consistently? Thus turning an initial $10,000 into $960,000,000 in 48 weeks? No trader has ever done that.
Yes, he mentions it numerous times in his books and interviews. I agree with your second point. Every professional investor pores over Buffett's sayings and any writings on him - yet they don't replicate his performance, for the most part. A boxer can study Muhammad Ali tapes all day long, that doesn't mean he can fight like him.
You made your point 2. correct with the word "virtually" However, there are firms (JPM, GS, for example) that have long histories of making huge trading profits consistently for far more than 30 years. The key to their trading success seems to have come from being able to: 1. trade on inside knowledge; 2. use their "analysts" in coordination with the media and their access to large amounts of capital and credit to move the market in a direction favorable to their positions; 3. use their capital in legal ways to purchase political favors that will help them avoid regulatory hurdles; 4. hire the best and brightest financial minds and have astounding good "luck" when friendly, former employees are appointed to, or hired into, government positions helpful to their trading operations. Also, status as a market maker has been helpful in achieving profits, and certainly JPM's status as a Federal Reserve shareholder is not without its benefits. It seems your point 2 is strictly true only for broadly based, large, long-only, mutual funds. Indeed these, so far as I am aware, have not been able to beat the market consistently over long periods. Some other types of managed funds, though, have been able to do this. The managed, large, long-only, sector fund known as the Vanguard Health Fund comes to mind. (My guess would be that that fund's success is due more to the government-protected cartel structure of American medicine than it is to the fund's managers' skills. Nevertheless it has done better than other same-sector funds.)
Although I hold it in high regard, It has been years since I have opened that book. How did market valuations compare to book value during the period to which you refer?
Mr. Buffett explains how he does it in his letters to shareholders at http://www.berkshirehathaway.com/letters/letters.html. I notice billionaire J. Paul Getty, also reported to be one of the richest people in the world about year 1962, uses similar guidelines in his investment and acquisition decisions: "How To Be Rich", by J. Paul Getty ISBN # 0-872-16613-9.